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Moody’s affirms ratings of eight Omani companies

23 Oct 2021 Moody’s Oman By OUR CORRESPONDENT

Muscat – Moody’s Investors Service has affirmed the ratings of eight government-related issuers (GRIs) domiciled in Oman. At the same time, Moody’s has also revised its rating outlooks on these eight government-related companies to ‘stable’ from ‘negative’.

The rating action, Moody’s said, is a direct consequence of that on the government of Oman where the Ba3 government bond rating was affirmed and the outlook was changed to stable from negative.

Moody’s has affirmed the ratings of the following eight GRIs to Ba3 and revised their outlooks to stable from negative because of their close linkage to the government and high exposure to the domestic operating environment: Dhofar Power Co (DPC), Majan Electricity Co (MJEC), Mazoon Electricity Co (MZEC), Muscat Electricity Distribution Co (MEDC), Oman Electricity Transmission Co (OETC), Oman Power and Water Procurement Co (OPWP), Rural Areas Electricity Co (Tanweer), and Oman Telecommunications (Omantel).

In a statement, Moody’s said the decision to change the outlooks to stable from negative reflects the strong credit links between these companies and the sultanate’s government.

The ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer are constrained by the sovereign rating because of their significant exposure to the Omani government in the form of subsidies (OETC and OPWP being indirectly exposed), the ratings agency said.

It further said the liquidity of DPC, MJEC, MZEC, MEDC, OPWP and Tanweer remains weak because of their continued reliance on short-term funding.

‘While delays in the payment of subsidies have reduced, the liquidity of DPC, MJEC, MZEC, MEDC, OPWP and Tanweer continues to be negatively affected by the use of short-term working capital facilities to cover shortfalls. MJEC, MZEC and OETC will also continue to face high capital spending until at least 2023 with associated funding requirements and increases in leverage,’ Moody’s said.

As per Moody’s statement, the ratings of DPC, MJEC, MZEC, MEDC, OETC, OPWP and Tanweer remain supported by (1) the stable and transparent regulatory frameworks for the electricity and water sectors and the independence of the regulator; (2) the cost-recovery mechanisms of the regulatory frameworks; (3) the low business risk profile of their activities; and (4) their respective monopoly positions in Oman.

On the other hand, the rating of Omantel, Moody’s said, is constrained by the rating of the Omani government because the company generates most of its cash flows in the sultanate.

It said the rating of Omantel remains supported by the company’s (1) dominant market position in the Omani market; (2) resilient operating performance, supported by the necessity-like consumer spending on telecommunications services; (3) high Ebitda margin of above 50 per cent; and (4) good liquidity.

Moody’sexpects Omantel’s leverage and cash flow metrics to improve in 2021 to 2.5x and 22 per cent from 3.0x and 17.7 per cent in 2020, respectively.

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